1. Best Hardware uses a periodic inventory system. Its inventory was $38,000 at the beginning of the year and $40,000 at the end. During the year, Best made purchases of merchandise totaling $107,000. Identify all of the correct answers:
a. To use this system, Best must take a complete physical inventory twice each year.
b. Prior to making adjusting and closing entries at year- end, the balance in Best’s Inventory account is $38,000.
c. The cost of goods sold for the year is $109,000.
d. As sales transactions occur, Best makes no entries to update its inventory records or to record the cost of goods sold.
2. The two basic approaches to accounting for inventory and the cost of goods sold are the perpetual inventory system and the periodic inventory system. Indicate which of the following statements are correct. (More than one answer may be correct.)
a. Most large merchandising companies and manufacturing businesses use periodic inventory systems.
b. As a practical matter, a grocery store or a large department store could not maintain a perpetual inventory system without the use of point-of-sale terminals.
c. In a periodic inventory system, the cost of goods sold is not determined until a complete physical inventory is taken.
d. In a perpetual inventory system, the Cost of Goods Sold account is debited promptly for the cost of merchandise sold.
4. Big Brother, a retail store, purchased 100 television sets from Krueger Electronics on account at a cost of $200 each. Krueger offers credit terms of 2/10, n/30. Big Brother uses a perpetual inventory system and records purchases at net cost. Big Brother determines that 10 of these television sets are defective and returns them to Krueger for full credit. In recording this return, Big Brother will:
a. Debit Sales Returns and Allowances, $1,960.
b. Debit Accounts Payable, $1,960.
c. Debit Cost of Goods Sold, $1,960.
d. Credit Inventory, $2,000.
5. Two of the lawn mowers sold by Garden Products Co. are the LawnMaster and the Mark 5. LawnMasters sell for $250 apiece, which results in a 35 percent gross profit margin. Each Mark 5 costs Garden Products $300 and sells for $400. Indicate all correct answers.
a. The dollar amount of gross profit is greater on the sale of a Mark 5 than a LawnMaster.
b. The gross profit margin is higher on Mark 5 s than on LawnMasters.
c. Garden profits relatively more by selling one Mark 5 than by selling one LawnMaster.
d. Garden profits more by selling $2,000 worth of Mark 5s than $2,000 worth of LawnMasters.